How to Squeeze More Yield from Your Crypto
With savings rates low and interest rates high, more and more people are turning to alternative methods of generating an income from the money they have lying around. One of the easiest methods that have become available in recent years is cryptocurrency staking.
Staking is the process of locking up a portion of your cryptocurrency portfolio, ‘Staking’ it in the market, and acting as a validator. As blockchain transactions need to be validated before they’re logged on the system, people who stake are providing a method of the currency to become more stable over time. In return for this service, those that stake a certain cryptocurrency will get rewards and interest on the amount they’ve locked away.
Although this is the core concept, people have taken this to the limit in recent years, looking for ways to maximize the amount of yield that they’re getting from their cryptocurrency – that’s where crypto yield farming comes in.
In this article, we’ll be dissecting the best ways that users are making the most out of their cryptocurrency, demonstrating how you can boost your annual return.
Let’s get right into it!
Why Would I Want To Stake My Cryptocurrency?
While cryptocurrency adoption is making solid progress, especially as we continue to surge through 2022, crypto staking is still a lesser-known aspect of DeFi systems. Yet, even though the progress is slower, we’re now seeing more and more Proof-of-Stake cryptocurrencies hit the market and gain a following.
Recently, the top 30 PoS digital assets hit a total of $594 billion, which makes these currencies over half of the total market cap for cryptocurrency. Even over only the last quarter, there has been an increase of 43% in the amount of currency being staked online.
With a surge of people turning to stake cryptocurrency, we’ve noted down their top reasons for doing so:
- Support the System – All early platforms, applications, businesses, and cryptocurrencies need a pool of early adopters. Many cryptocurrencies will offer the ability to stake their coins in order to get a range of early investors onboard. By locking up your funds, you’ll be providing liquidity to the newly launched cryptocurrency and helping them towards a more sustainable long-term growth rate.
- APY Interest – Each staked coin offers an annual percentage yield (APY) in exchange for locking away funds. Just like an investment account, this will generate a certain amount of interest, with the largest staking projects having up to triple-figure APYs.
- Appreciating Funds – If you’re locking your cryptocurrency away, gaining interest on it in the native token, and the asset moves up in price, you’ll be generating a further income off this coin. This dual-stream of investment opportunity has been incredibly lucrative for early adopters of cryptocurrencies that have done particularly well.
In short, by staking your currency, you’ll not only be benefiting financially if things go well, but you’ll also be helping the cryptocurrency project further develop.
How Can I Get The Highest Returns Possible?
Looking for projects that offer the highest percentage return possible, also known as ‘Yield Farming’, has become an incredibly popular pursuit over the last few months. While commonly confused with cryptocurrency staking, this is a slightly different approach to growing your digital asset.
While someone that’s just landed in the world of cryptocurrency will typically seek to boost their staking returns by simply looking for a project that offers the highest annual return, yield farming offers a different pathway.
Often staking projects can fall through, leaving the investor with the same or less than they originally invested. Consider, if you’re promised a return of 200% annually, but that cryptocurrency falls to zero or the developers make off with all the money deposited, that 200% on nothing doesn’t look so impressive all of a sudden.
This considered, while moving through central staking platforms like Binance is a possible method of staking, many people chasing the highest yield possible are turning to yield farming platforms.
What is Yield Farming?
Yield farming is the process of lending crypto to different DeFi platforms and then earning interest from this. Instead of you directly supporting a particular blockchain, you’ll be lending your crypto to a platform that will then create a liquidity pool on their own behalf. These funds will provide a DeFi protocol with liquidity, helping them to facilitate trading, borrowing, and lending on their platforms.
As a reward for the liquidity you’re providing, you’ll be paid out a fee that’s determined by the amount you’ve given to the total liquidity pool. One major benefit of yield farming is that interest is earned daily, allowing you to get paid in the cryptocurrency you’ve invested on a continual basis.
Instead of letting your cryptocurrency sit idly in your wallet, these DeFi platforms will allow you to put your coins to work, generating further income. Currently, the three most notable platforms for yield farming that will help make the most out of your crypto are:
Let’s demonstrate what these platforms can do for you.
Venus is a platform that directly connects to the BNB Chain, bringing DeFi-lending to this system. Within Venus, a user will be able to supply stablecoins and cryptocurrencies in return for a certain APY. By providing liquidity to a certain protocol, they will gain lucrative benefits.
Alongside the typical advantages of yield lending, this platform takes it one step further. Instead of sitting idly as your stablecoins are locked into the liquidity pool, you’ll actually be able to use the collateral that you supplied to borrow other assets within the system. You can even mint synthetic stablecoins on the platform, using over-collateralized positions.
Instead of being backed by fiat currency, these synthetic stablecoins are supported by a basket of cryptocurrencies. The generation of these coins enables accessibility, allowing users to benefit from the collateral that they’ve locked away. Due to the system leveraging BNB Chain, a user will be able to mint stablecoins on-demand within a fraction of a second.
Instead of stagnating currency, this protocol instantly unlocks billions of dollars currently on-chain, enabling participants to access the liquidity they form a part of and put it to use.
Due to these innovative features, you’ll be able to maximize the efficiency of your cryptocurrency capital. Moving across lending and borrowing interchangeably, you’ll be able to push the limits of yield farming further than ever before. This is by far the most powerful money market protocol, driving returns and putting your crypto to work.
Compound is the platform that originally led to the boom in yield farming’s popularity. After launching the COMP token, which is a governance token of the Compound ecosystem, users were then given the tools they needed to take part in the governance of this DeFi protocol.
This further incentive to provide liquidity into pools on the platform pushed users to flock to Compound, with attractive benefits and the ability to create changes on the platform quickly moving Compound into a leading DeFi market position.
Within Compound, users are able to borrow from the platform, deposit that amount by lending to the platform, and then repeat the process. By using this method, some people have managed to earn some big returns. Yet, this strategy is much more complicated than other methods on this list.
AAVE is a decentralized platform where users can lend and borrow money, just like Venus and Compound. While the rates of reward aren’t as high as Compound and Venus, AAVE is a very easy platform to yield farm on.
Once you’ve created an account on the AAVE application, you’ll be able to connect your wallet. From there, all you need to do is choose a certain asset that they offer. You’ll be able to see the maximum loan-to-value, which is the total borrowing power for a certain collateral asset.
Once you’ve found a rate that you like, you’ll just need to deposit, and you’ll actively yield farming that currency. While this is simple, it doesn’t provide the most lucrative returns.
If you’re looking for a happy medium – not too complicated with great returns – then the best platform you can turn to is Venus. Its innovative use of generating synthetic stable tokens further opens up the market, leading to larger profit returns and boosting the number of options you have when trying to increase your own earnings.
While both AAVE and Compound offer yield farming solutions, they are yet to display features that are as comprehensive as Venus. When looking to get started in the world of crypto field farming and put your currency to use, this platform is definitely one to take notice of.